Twitter sued for fraud over failed private sale of shares

Twitter Inc. was sued for $124 million by two financial firms that claim the Internet company engineered a failed private sale of its shares to pump up investor interest for its planned initial public offering.

The firms, Precedo Capital Group Inc. and Continental Advisors SA, sued today in Manhattan federal court, claiming Twitter fraudulently used the aborted sale to set a $10 billion valuation for itself and a floor price for the IPO.

“Twitter never intended to complete the private sale of Twitter stock,” the firms said in their complaint. “Twitter’s intention was to induce Precedo Capital and Continental Advisors to create an artificial private market wherein Twitter could maintain that a private market existed at or about $19 per share for the Twitter stock.”

San Francisco-based Twitter is seeking as much as $1.4 billion in its IPO, which is scheduled to price Nov. 6. At the top of the proposed range, Twitter would be valued at $10.9 billion. While the company has more than doubled revenue annually, it hasn’t yet turned a profit and the pace of user growth is slowing.

Gabriel Stricker, a Twitter spokesman, didn’t immediately respond to a request for comment sent before business hours.

The case is Precedo Capital Group Inc. v. Twitter Inc., 1:13-cv-07678, U.S. District Court, Southern District of New York (Manhattan).